This week, Google announced that it was reorganizing and changing the name of its company from Google (GOOG) to Alphabet. On the surface, this is a puzzling move. Why would the company embrace a new, unknown name instead of Google, a brand with remarkable awareness and presence? Many companies have done just the opposite. Blackberry (BBRY), for example, abandoned the Research in Motion name. Target (TGT) dropped Dayton Hudson.
A deeper analysis, however, reveals that this is a smart, strategic branding strategy for Google.
By embracing the name Alphabet, Google is becoming a pure house of brands. The parent brand, Alphabet, will own a number of different brands, including Google, Android and You Tube. Alphabet apparently won’t be a consumer-facing brand; it will be the corporate parent. CEO Larry Page said in the announcement that “Alphabet is mostly a collection of companies.” This is true, but it might be more important to note that Alphabet is also a collection of great brands.
More: Why Google changed its name to Alphabet
This is the same structure used by many successful brand-oriented companies. Unilever (UN) owns hundreds of different brands including Dove, Axe, Lipton and Ben & Jerry’s. United Technologies (UTX) owns Otis, Pratt & Whitney and Carrier. FCA owns Jeep, Fiat and Chrysler.
A house of brands strategy makes enormous sense. One notable benefit is that it creates flexibility. The firm can easily acquire new brands and spin off brands. With the new strategy, Alphabet can add brands to address growth opportunities and spin off or sell brands with less potential.
The strategy can also lead to better brand building. A company with a house of brands strategy can have different brands, each with a distinct positioning. For example, one brand can stand for health while another owns indulgence.
There is also an important organizational dynamic to the change. With a house of brand strategy, one brand isn’t necessarily more important than the others. Coke is clearly the most important brand at Coke. Target is the most important brand at Target. This is an important symbolic shift for Google. Google matters but now it isn’t the primary brand that matters at the company. Other brands can be important, too.
More: Why Wall Street is wrong about Google’s Alphabet name change
Google isn’t going away, of course. Instead, this move will make Google a stronger brand, because now people won’t be confusing the product with the company. Google can be Google, the world’s best way to find information. This will make the Google brand tighter and better defined.
In many ways, the strategy change opens new opportunities for growth. Alphabet can now build different brands in different segments. If the firm wants to create a technology brand in health, for example, it can, without any connection to Google.
The striking thing is how unique Google’s new brand portfolio strategy is in the world of technology. Many of the big technology companies focus on one primary brand, using a branded house strategy, or at least embrace the name of the most important product: Facebook (FB) is Facebook, Apple (AAPL) is Apple and Twitter (TWTR) is Twitter.
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There are two problems with this branded house approach. The first issue is that the strategy might lead to slower growth, because the firm can’t pursue opportunities that don’t fit with its brand. The second, more significant problem is that it tends to create weak brands. In a bid to be broadly relevant, the company embraces a positioning for that brand that is general and vague. The brand isn’t polarizing but it also doesn’t stand for anything specific. This is a problem. Just look at Hewlett-Packard Company (HPQ) and Yahoo (YHOO), brands that have high awareness but lack a distinct meaning. One could argue that HP would be a much stronger brand if it wasn’t spread across quite so many products and categories.
Google’s bold shift won’t lead to an immediate jump in profits. If anything, in the short-run, it will create confusion. It will also be costly; the firm will need to create new signs and establish a digital presence.
Longer term, however, the change will open up growth opportunities. Google can be Google. You Tube can be You Tube. And the firm can acquire or create new brands that reach new opportunities in the market.
So while Google’s corporate change is unexpected, it is a savvy move. I suspect other technology companies hoping to grow will make a similar shift in the years ahead.
Tim Calkins is clinical professor of marketing at the Kellogg School of Management at Northwestern University. He teaches marketing strategy and biomedical marketing. He is author of the book Defending Your Brand.